Talking business in Manila

Shopping late into the evening is a favorite pastime for citizens of Manila, and those who have money to burn go shopping in Makati district, where all the big brands have flagship stores. This week, delegates of the World Economic Forum on East Asia have been mixing with the locals in Makati. Identifiable by their easily recognizable name-tags, they've been settling in at various cafés for collegial chats.

The venue for "Asia's Davos", as the World Economic Forum is called in the Philippine press, is the very posh Shangri La Hotel in the center of Makati. More than 600 delegates have come to Manila to talk about the economics and politics of the Asia-Pacific region. In addition to numerous government ministers and corporate CEOs, delegates include Vietnamese Premier Nguyen Tan Dung and Indonesian President Susilo Yudhoyono. They speak confidently about the strong economic growth rates of the region.

Corruption remains a perennial problem

The Philippines are a good example of strong growth, but also of the persistence of corruption. After many years of political and economic instability, the country now offers high and stable economic growth rates.

Popular President Benigno Aquino used his keynote address to the Forum plenary on Thursday to promote his country as an investment destination. "Our country has the economic and social potential to grow from success to success," he said, underlining the theme that "good governance is good economics." He attributed the nation's economic turnaround to widespread reform and the administration's adherence to sound management principles.

In early May, the Philippines' credit rating was increased by three ratings agencies (Fitch, Moody's and Standard & Poor's). From the previous rating of "BBB-," S&P now rates the Philippines at “BBB,” one notch above minimum investment grade. It's the best grade the Philippines has ever received from any of the three major credit rating agencies.

Macroeconomic data show a promising trend, and the government says it will make increased efforts to fight corruption. But that may be easier said than done. So-called "pork barrel funds" are a lively topic in Manila's media at the moment.

Elected representatives have control over the use of these special public funds, officially known as "Priority Development Assistance Funds." Legislators are meant to allocate the money to high-priority infrastructure or social projects in their own electoral districts. Commonly, however, a large proportion of the money fails to arrive. What commissions are pocketed in these transactions, by whom and why, remains less than transparent.

Endless traffic jams

Inadequate infrastructure is a major problem in the Metro Manila, a megacity with about 20 million residents. Mornings and late afternoons, nothing moves. At peak times, covering a distance of three kilometers by car takes an hour and a half or longer. In the evenings, line-ups in front of shopping centers are hundreds of meters long, as people wait for their turn to board a Jeepney in order to get home.

Jeepneys are privately operated share-taxis whose design harkens back to the Willys jeeps used by the US armed forces in the post-Second World War period. They supply much of the public transit demand in the country. Locally produced in the Philippines, Jeepneys are renowned for their elaborate kitsch decorations, and notorious for their crowded seating and the clouds of pollution that billow from them.

Poor infrastructure is a problem in most of the region's countries, not just in the Philippines. Indonesian Finance Minister Muhamad Basri acknowledges that "the main issue is infrastructure". So far, the build-out of infrastructure hasn't been able to keep pace with economic growth. Better streets and modern airports are among the improvements needed.

But Anthony Fernandes, CEO of Malaysia-based discount airline Air Asia, is optimistic about the region's prospects. "Twelve years ago, we started with two airplanes. Now we have over 160. We are lot of people in this part of the world; things are going our way, the potential for Asian business to grow is enormous," he said cheerfully in Manila, pointing to the 700 million strong population of the region as a basis for continued growth.

Regional conflicts

Regional geopolitical tensions are a focus of worried discussions at the World Economic Forum. A conflict is heating up between China and Vietnam over territorial claims in the so-called South China Sea, a resource-rich stretch of ocean between the coast of Vietnam and the western coast of the Philippines.

Vietnamese Premier Nguyen Tan Dung distributed a written declaration on Thursday, saying Vietnam will "fiercely defend its territory," but would never resort to military action "unless we are forced to take self-defense actions." He said Vietnam is "considering various defense options, including legal actions in accordance with international law."

China is trying to claim to about 90 percent of the South China Sea, displaying its reach on official maps with a so-called "nine-dash line" that stretches deep into the maritime heart of Southeast Asia. The Philippines, Vietnam, Malaysia, Brunei and Taiwan also have claims to parts of the same waters, which are believed to cover large subsurface oil and gas deposits.

Plan B

Delegates at the WEF in Manila all agree that an intensification of the conflict would not be good for the further development of the region. A few corporate CEOs are already thinking about a Plan B, in case supply chains in Vietnam are interrupted as a result of the growing conflict, although no-one wanted to comment about that on the record.

Toshiba Corporation's Chairman Atsutoshi Nishida merely noted that the region's economies are already so closely interwoven that alternatives to existing supply chain arrangements could not be quickly implemented.

He offered the devastation caused by the earthquake and tsunami that caused the 2011 nuclear accident at Fukushima as an example. Among other consequences, the regional damage to Japanese infrastructure caused significant - if temporary - outages in global automotive parts and semiconductor supply chains.